Managing Your Warehouse Club Business – Warehouse Club Focus
By Glenn Llopis, Glenn Llopis & Associates –
Over the past
10 years, Glenn Llopis has examined how organizations (large and small)
designate management accountability for the warehouse club business. Our findings have been astonishing, as
warehouse club management has ranged from one person to a fully designated club
team or department. Most companies have
allocated limited resources to support their warehouse club business as management
views this channel as unstable, risky, and too costly. As one executive said, “It is difficult to
convince shareholders to invest in a business where you are in one day, out the
next.” While many in the industry share
these views, it is a general lack of understanding of how to succeed within the
warehouse club channel that leads to these conclusions. As a result, companies fail to structurally
design their organization to successfully market to the clubs; ignoring both
how and why the clubs should be given the proper time and attention.
The warehouse
club business is too powerful to be ignored.
Not only are the clubs (Costco, SAM’S Club and BJ’s)
estimated to generate $144 billion in revenue by 2008, but they also offer an
approach to buying and selling goods that allow the most organizationally
prepared company to succeed profitably.
In fact, the warehouse clubs challenge manufacturers to manage the
entire spectrum of supply chain activities that include research and
development, packaging, warehousing and logistics, sales, marketing and
merchandising. This is a distinct
difference from retail and foodservice channels that require heavy up-front
dollars for an opportunity to sell their products and build your brands. As retail and foodservice channels demand
more money and lower prices from vendors to stimulate financial performance;
products and categories become commodities and consumers lose confidence in
selection and choice. The warehouse
clubs, on the other hand, have become a market-driven channel led by an
inventory management strategy that controls cash with the objective to increase
membership satisfaction. Their strategy
is to optimize volume through high consumption products that offer consumers
value.
While success
with the clubs requires a go-to-market approach that is distinctly different
than retail and foodservice channels, there exist crossover resources and
capabilities that can benefit an organizations’ overall club strategy This article will
address these points in an effort to help manufacturers create an efficient
club management structure.
General
Overview: Club Management Accountability
Who should be
accountable for the management of the warehouse club business? This question challenges most organizations
during their annual planning process as resource requirements, personnel,
production, research and development and product or brand management
responsibilities always seem to be a constraint. Subsequently, management designates warehouse
club responsibilities as an extension of their existing retail or foodservice
divisions. In many cases, warehouse club
management is shared between these two divisions based on products, brands,
office locations, national account and specialty
market responsibilities. While sharing
club responsibilities is one approach, it generally fragments decision making,
makes it difficult to plan production, sales and marketing and complicates
execution and delays results. The clubs
require full management attention. To
enjoy profitable success with the clubs, this channel cannot be resorted to a
secondary priority. Though referred to
by many as an alternative channel, club success requires that companies
maintain on-going knowledge of several activities that can include merchandising
philosophies, club customer financial and investment activities, innovative
product needs, packaging strategies and category buyer and management
changes. Access to this knowledge can
be difficult and accurate facts require constant due diligence and alliances
with credible club industry resources.
This on-going search for club intelligence is critical for channel
strategy success as there does not exist an FMI or NRA
convention dedicated to the warehouse club industry. The clubs are a unique breed whose operating
formula is constantly changing and whose secrets for success are kept quietly
in the boardroom.
The warehouse
club business is constantly evolving.
The speed of change is so fast, that competitive pressures abound
quickly and the risk of incumbent products or brands losing business always
exists as the clubs constantly seek to improve their merchandise assortments in
an effort to exceed membership satisfaction.
This speed of change and desire by the clubs to continuously seek
innovation and operational enhancements from their vendor partners requires
that both existing and new club vendors consider the following three
organizational strategies for stable and profitable warehouse club
success. These include the warehouse
club team, the warehouse club department and the warehouse club division.
The
Warehouse Club Team
The development
of a warehouse club team is a good first step for those organizations that do
not have a dedicated club department or currently view the clubs as an extension
of their existing retail or foodservice channels. This team should be led by senior management
and include personnel in the areas of sales, marketing, administration and
logistics, research and development, manufacturing and engineering (packaging),
and quality management. Sales management
should be designated through an experienced club broker or an experienced
in-house sales manager. The participants
of this team should be located in the same office and have the ability to
conduct on site meetings at least twice a month. The team must work collaboratively to design
a warehouse club strategy with a mutually exclusive operating budget with
specific performance goals and objectives that are designated to each functional
team participant. In addition, each
participant should be designated special projects and assignments that
correspond to specific club management areas.
This forces the team to consider all strategies that support warehouse
club growth initiatives.
The leader of
this team must be experienced in the warehouse club business that will have
responsibility for the organizations profit and loss. The team leader must be able to integrate
the warehouse club operating philosophy and the crossover characteristics and
strengths of both retail and foodservice channels as shown previously in the
first chart. In addition, the team
leader must stimulate immediate buy-in and understanding of the club business
to assure timely and accurate performance to eliminate the occurrences of any
politically driven motivations. The team
should be given warehouse club training in an effort to start the warehouse
club business development process at a level playing field of
intelligence. Unfortunately, in every
retail or foodservice company everyone has an opinion about the club business
with a different set of philosophies and approaches. To eliminate conflict, it is best to assess
club team knowledge prior to the club strategy design. In fact, it is recommended that an assessment
of the warehouse club team candidates be conducted prior to the assembly of the
team. Finally, the selected members of
the warehouse club team should participate in a bonus compensated program that
measures several categorical areas based on overall team performance and plan
initiatives.
The warehouse
club team approach offers a low risk and high reward operating platform for
those companies who are evaluating the clubs as a viable departmental or
division channel. The rewards include a
focused warehouse club business plan and approach, a new avenue to promote
management that offers cross-functional training due to the crossover
characteristics and strengths that are required to be successful with the
clubs.
The
Warehouse Club Department
The warehouse
club department is for the medium or large organization that has been
successful with the team approach and has generated sufficient financial
resources to be able to invest in a fully dedicated staff. Unlike the team strategy, a warehouse club
department has a dedicated staff that is accountable in the lead functional
areas of sales (on a direct basis), marketing and research and
development. Though these areas are not
shared with retail or foodservice channels, there should exist
frequent communication with these channels to assure that the crossover
characteristics and strengths are being leveraged to support the club plan.
This department
now becomes its own mutually exclusive channel entity and should operate from
the corporate office location. The
leader of this channel should be a senior manager who has full profit and loss
responsibility for all channel operations as the club business requires strong
financial and supply chain management skill sets due to the constantly changing
channel performance variables. While
this department functions as a channel entity, all operational resources are
still shared. These support functions
include finance and administration, customer service, production and
warehousing and logistics.
Like the team
strategy, all club department staff members should participate in a bonus
compensation program. However in
addition to payout being generated on departmental or product results, the
staff will also be measured on their ability to increase supply chain
performance. As shown in the chart on
the right, supply chain management is the development of strong collaborative
relationships amongst suppliers, vendors, manufacturers, sales agencies,
customers and consumers to create profitable business growth and cost
efficiency gains through speed in decision making that is generated from the
integration of common goals, vision and resource sharing initiatives. Because the warehouse club business offers
tremendous volume growth potential, it allows organizations to increase
operating efficiencies across the supply chain thus allowing all channels to
benefit from the reduction of operating overhead.
The
Warehouse Club Division
The warehouse
club division is for the organization that understands the “success formula” to
compete profitably with the clubs and is financially able to function
autonomously. Unlike the department
strategy, a mutual exclusive division operates like a separate company that has
mastered the crossover characteristics and strengths of its existing retail or
foodservice channels. This newly formed
club division should be located away from the corporate headquarters and should
have little if any interaction with existing retail or foodservice channel
divisions. This club division will staff
personnel across the entire supply chain spectrum, will be responsible for all
supply chain management responsibilities and will have the flexibility to make
independent production, packaging, logistics and research and development
decisions to support the sales and marketing needs of the club business. This division should be led by its own President
that can hand select personnel from either inside or outside the
organization. At this point the club
business has matured and now operates using a success formula that compliments
how Costco, SAM’S Club and BJ’s conduct
business. Thus recruitment is based on
functional skill sets that the formula requires.
This division
can now begin to explore more advanced club strategies that include proprietary
packaging, the most cost efficient manufacturing strategies, the development of
brand extensions into new categories, “top-to-top” relationships to earn
preferred vendor status, strategic alliances and licensing programs. Participants in this club division should
have “senior management level” capabilities and experience and be highly
compensated with a multi-tiered bonus compensation program.
In conclusion,
warehouse club organizational preparedness requires a team, a department or an
autonomous operating division led by senior management who effectively utilize
the crossover characteristics and strengths of its existing retail or
foodservice channels. Profitable
warehouse club success will be attained through the support of an
entrepreneurial sprit that supports performance measurement systems, flexibility,
integration of resources, innovation and speed in
supply chain management execution.
Do not ignore
warehouse club organizational preparedness as the performance of your products
or brands are only as good as the people, the teamwork and the intelligent
minds that manage their success.
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